Gold Tries to Overcome Stronger Dollar, Ends Up Modestly Off On Day

The U.S. dollar strengthened vs the euro in U.S. trading as Deutsche Bank sold off dramatically after approximately ten hedge funds downgraded the German megabank. In afternoon trading the U.S. listed Deutsche stock is off 6.5%.

The dollar vs. euro change hurt gold but regular traders helped. On balance between the push and pull of the two pricing forces, gold is essentially unchanged.

The big story today is oil. West Texas Intermediate bumped up over $48 per barrel, putting on another 2.00% to gains made earlier in the week. The power-up is due to optimism that OPEC has reached an “agreement to agree” on cutting production by 500,000 barrels per day. (It is notable that Iran is not thus far on board.)

As always, the devil is in the details and it will be sometime – perhaps till next year – to see if a sign-able deal is hammered out and then adhered to.

Another potential fly in the ointment is the world’s new heavyweight production champion – the United States. While prices have been depressed for the last few years, American producers in marginal oils – shale and tar sands – have made technological strides that will lessen delivered-to-market costs.

If the per-barrel price should reach, say, the high $50- to mid $60- range, you will see that type of oil flow freely into the marketplace.

U.S. equities did not like the soaring oil prices. Utilities especially were hurt and that dragged down the Dow and S&P. The NASDAQ was off on a 1.00% decline by Apple and pessimism in the biotech sector that had been riding high but sees some barriers to continued growth.

When you couple the spike in oil with the meltdown of Deutsche Bank (with the German Commerzbank not far behind) you had the makings of a terrible day for U.S. equities. Let’s also not forget that there are Italian, Spanish, Irish and, of course, Greek, banks that are close to needing bailouts.

We feel that the German government or the European Central Bank is going to have to prop up Deutsche. The sooner, the better if we want to void a downward spiral that could precipitate a serious correction in worldwide equities. After all the finger-wagging at other countries (including the U.S.) for shoddy banking practices, Germany will find itself with serious egg on its face.

Wishing you as always, good trading,